The backwards music business 1

According to a story in today’s Financial Times, music companies are upset because, get this, customers are flocking to buy legal digital downloads.

For several years, the record companies have complained about unauthorized peer-to-peer file sharing. Now, they are finally generating significant revenues from users paying to receive their songs over the Net. And the labels’ response is to complain that prices must be set too low. There were other, higher-priced digital download services around before Apple made 99 cents the standard price on iTunes, and they failed to catch on. That seems to suggest the current prices are in the sweet spot of the market, stimulating demand and luring users away from P2P downloads. The record companies seem to think otherwise.

In most businesses, news that customers are buying your products in droves would be met with jubilation. But in an industry used to controlling distribution chains and prices through rigid oligopolistic practices, that scenario is met with fear. Of course, if prices for legal digital downloads go up, illegal digital downloads start to look more attractive again. The labels may be about to cut off their noses to spite their faces.